Gratuity Eligibility Before and After Completion of 5 Years

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Gratuity Eligibility Before and After Completion of 5 Years

An organisation’s employee receives monetary compensation for the services they render. Gratuity is a vital component of the gross salary. It is a reward for your dedication to the company and is generally paid upon departure, with a few exceptions.

To receive gratuity and enjoy this benefit from your employer, you must meet specific eligibility criteria requirements. One of the most essential criteria is the ‘gratuity minimum’ years or the minimum number of years you must complete with the employer. The tenure is set as five years.

However, there are misunderstandings and confusion regarding eligibility for gratuity before the completion of 5 years. Let us explore the terms of the Gratuity Act of 1972 for a better understanding of its intricacies.

What is Gratuity?

Gratuity is the sum of money an employee receives from their employer as a recognition for their commitment to service. It is a one-time payment, paid to the employee upon resignation or retirement after completing a minimum of five years of service. An employee is also eligible for gratuity in cases of sudden death or disablement due to injury or illness.

Gratuity is an employee benefit that aims to support during retirement. The gratuity amount after 5 years of service varies for different employees. Typically, it is a component of the employee’s salary and is paid when the employee resigns or retires from the company after providing services for a continuous period of five years.

Gratuity Eligibility in India

To be eligible for gratuity, an employee must fulfil the following criteria:

  • The minimum service for gratuity is five years.

  • These five years of service should not have any gaps or interruptions.

  • The employee should be a fit candidate for the company’s superannuation or pension program.

  • The employee must resign or retire.

  • An employee can claim a gratuity before five years if they suffer from critical illness or a disability due to an accident.

  • A nominated family member can claim the amount if the employee dies during the work tenure.

Gratuity Eligibility of an Employee Who Has Worked for Less Than 5 Years in a Company

Generally, employees of a company receive gratuity after 5 years of service. However, many do not know about the exceptions and provisions incorporated in the Gratuity Act that enable an employee to claim gratuity even if their tenure is for 4.8 years or less.

Suppose you want to switch to a more promising job opportunity. You expect to receive a gratuity from your current employer for your years of commitment. However, the company denies the benefit, saying the minimum years of service to receive gratuity must be 5 years, and yours is comparatively shorter.

In such a scenario, you can contend your claim to gratuity referencing the law that governs gratuity.

Three conditions determine gratuity eligibility according to the Gratuity Act.

  • First, to receive gratuity, the minimum years of service for an employee should be five years before embarking on their departure.

  • Second, if the company’s workweek includes 5 days, gratuity eligibility years become 4 years and 190 days.

  • Third, if the company follows a 6-day workweek, you can claim gratuity after servicing the company for 4 years and 240 days.

How to Calculate Gratuity?

To calculate gratuity, you need to apply the following formula:

Gratuity = N * B * 15/26


N refers to the number of years you have serviced the company

B refers to the last basic salary you received, including dearness allowance

15 indicates wages for 15 days, and

26 implies the number of working days in a month, excluding the four Sundays

Now, let us calculate the gratuity amount after 5 years for Mr X. He received a basic salary, including a dearness allowance of ₹70,000 per month.

Gratuity amount = 5 * 70000 * 15/26 = 350000 * 15/26 = ₹2,01,923

Thus, Mr X is eligible to receive ₹2,01,923 as gratuity after 5 years.

What is the Maximum Gratuity Amount Payable to an Employee?

The Gratuity Act of 1972 has set the maximum limit of gratuity amount to ₹20 lakhs for an employee’s entire working life.

This means that even if an employee has multiple gratuity payments receivable from different employers, the total gratuity amount cannot be more than ₹20 lakhs.

Recent Advancements in the Gratuity Act

One of the latest updates in gratuity for private-sector employees is that the upper limit for tax-free gratuity has been increased to ₹20 lakhs from ₹10 lakhs. The 7th Central Pay Commission had earlier announced this raise for central government employees.

Another recent change in the Gratuity Act pertains to the benefits for journalists. These professionals can receive a gratuity after three years of continuous service instead of a five-year tenure.

Additionally, an employee’s base pay must be 50% of the CTC, with the remaining 50% comprising different employee allowances. This update will increase the gratuity benefit employees can receive. The calculation of the gratuity amount depends on the employee’s basic salary and allowances.


Gratuity is a monetary employee benefit you receive from your employer on departing from the company. The predetermined amount is transferred to your registered bank account if you have completed continuous service for five years or more. In certain exceptions, employees or their nominees are eligible for the gratuity benefit even before the end of five years.

Another employee benefit you must consider to avail of is medical insurance. With a suitable health insurance plan, including pre-existing disease health insurance, you can enjoy peace of mind as you are financially protected against medical expenses arising from minor illnesses, injuries, or critical diseases.

At Tata AIG, you can buy health insurance online through a straightforward and quick process, and not let your medical bills dig a massive hole in your savings.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

Related Articles

What are the rules of taxation on gratuity?

What are the rules of taxation on gratuity?


According to the Indian Income Tax Act, gratuity benefits up to a limit of ₹20 lakhs are tax exempted.

Are temporary employees or interns eligible for gratuity benefits?


No. Due to the engagement terms, interns and temporary employees are not eligible for gratuity benefits.

What does it mean to have five years of continuous service?


It means you are employed with the organisation for at least five years without interruptions like sabbatical or resignation/termination and then rehiring

What happens to the gratuity benefit if the employer goes bankrupt?


You are entitled to the gratuity amount even if your employer goes bankrupt. No court can deny this right if you fulfil the eligibility criteria.